IDE Group Holdings Plc ("IDE Group" or the "Company")
Subscription and issue of Convertible Loan Notes to raise £5.0 million (gross)
and
proposed Open Offer to raise up to a further £0.5 million (gross)
IDE Group Holdings plc, the mid-market network, cloud and IT Managed Services provider, announces a fundraising to raise up to approximately £5.5 million(the "Fundraising"), before expenses, comprising of a firm subscription for gross proceeds of £0.5 million(the "Firm Subscription"), a conditional subscription for gross proceeds of £2.7 million(the "Conditional Subscription"), the issue of £1.8 million convertible loan notes (the "CLNs"), constituted by a convertible loan note instrument issued by the Company (the "CLN Instrument") and an excess entitlement open offerfor up to £0.5 million (the "Open Offer"). Alongside the Fundraising, the Company will repay the £2 million unsecured loan notes issued on 29 May 2018(the "Existing Loan Notes")to alleviate the Company of the financial burden of the interest attached to the Existing Loan Notes. Repayment of £1.25 million of the Existing Loan Notes will be made by way of an allotment of 30,000,000 new ordinary sharesof 2.5p each in the capital of the Company ("Ordinary Shares")and 20,000,000 new Ordinary Shares at 2.5 pence per share to MXC Guernsey Limited("MXC"), a wholly owned subsidiary ofMXC Capital Limitedand Salvators Lending Limited ("Salvators") respectively(together, the"Redemption Shares"). Repayment of the remainder of the Existing Loan Notes, being £0.75 million, will be made to Kestrel Opportunities, a cell of Guernsey Portfolios PCC Limited("Kestrel") by way of the issue ofadditional CLNs, pursuant to the terms of the CLN Instrument. Together, the Subscription, the Convertible Loan Notes, theOpen offer, and redemption of Existing Loan Notes make up the transaction (the "Transaction").
As highlighted at the time of the trading update on 16 July 2018, the board of directors of IDE Group (the"Board")hasbeen reviewing the Company's options to address the ongoing working capital requirements ofthe Group. As at 30 June 2018, net debt totaled c.£13 million, which includes the £2 million Loan Note announced on 30 May 2018 and a draw down on the Company's entire overdraft facility with The Royal Bankof Scotland plc ("RBS")of £3.5 million, the facility is repayable upon demandat RBS'sdiscretion. The Board has explored a number of options and believes that the Fundraising is the best option available to the Group to re-capitalise its balance sheet and build a strong base from which to exploit the opportunities available to it.
The net proceeds from the Fundraising will be used to alleviate the short term cash pressures on the Company and work towards normalising creditors. The proceeds will facilitate the restructure to right-size the business enabling the Company to trade profitably whilst the Company continues its strategic and operational review evaluating a range of options to recognise value for stakeholders, including the divestiture of certain business lines and assets within the Group. RBS remains supportive of the Company and have confirmed that they will not call for the overdraft to be repaid upon receipt of the funds from the Fundraising.
A circular in respect of the Conditional Subscription, the issue of the CLNs and the Open Offer will be posted to shareholders in due course along with a notice of general meeting (the"General Meeting")of the Company(the "Circular"). The Circular, Application form and Form of Proxy will be available on the Company's website atwww.idegroup.com.
The Fundraising:
The Subscription:
•The Conditional Subscription for 107,999,998 new Ordinary Shares at 2.5 pence per share("Subscription Shares")and the Firm Subscription for 20,000,000 new Ordinary Shares at 2.5 pence per share to raise, in aggregate, £3.2million (the "Subscription").
•MXC, an existing 21.9 per cent. shareholder in the Company, and Salvators, an investment vehicle ofBill Dobbie, IDE's interim Non-Executive Chairman and existing 8.85 per cent. shareholder in the Company, have agreed to subscribe for 78,851,125 Subscription Shares and 18,305,764 Subscription Shares respectively in the Conditional Subscription. MXC has also agreed to subscribe for all of the 20,000,000 new Ordinary Shares under the Firm Subscription.
•As the Company only has authority from shareholders to issue a limited number of new ordinary shares on a non-pre-emptive basis, the Subscription will take place in two tranches in order for the Company to raise the £0.5 million Firm Subscription funds without undue delay. Completion of the Conditional Subscription, which shall raise £2.7 million, will be conditional on the consent of the shareholders of the Company being given at the General Meeting to dis-apply pre-emption rights over and authorise the allotment of the new Ordinary Shares.
The Convertible Loan Note
•The issue of the CLNs to raise £1.8 million.
•The CLNs are convertible over a term of five years from the date of issuance at the issue price of 2.5 pence per Ordinary Share and have no interest attached. If the CLNs are not converted, the outstanding principal amount will become repayble at the end of the five year term.
•Kestrel, an existing 17.99 per cent. shareholder in the Company, has agreed to subscribe for approximately £1.216 million of the CLNs. Kestrel Partners LLP ("Kestrel Partners") for and onbehalfof The Vanderbilt University ("Vanderbilt")has subscribed for a further £0.432 million of the CLNs.
The Open Offer
•An excess entitlement open offer to existing shareholders of up to 20,000,000 new Ordinary Shares at 2.5 pence per share(the "Open Offer Shares")to raise up to £0.5 million.
•None of MXC, Kestrel or Salvators will take up their entitlements under the Open Offer.
Accelerated Whitewash
As a result of the Fundraising, MXC, an existing 21.9 per cent. shareholder in the Company, will have a maximum possible shareholding of 172,811,125 shares or 45.6per cent. of the Company's voting rights atsuch time.
The Company has successfully applied, on behalf of MXC, for a dispensation from making a mandatory offer under Rule 9 of the City Code on Takeovers and Mergers (the"Code") in relation to the Fundraising. In accordance with Note 5(c) in the Notes on Dispensations from Rule 9 of the Code, in the case of an issue of new securities, independent shareholders holding shares carrying more than 50% of the voting rights of the Company which would be capable of being cast on a "whitewash" resolution have confirmed in writing thatthey approve the proposed waiver and would vote in favour of any resolution to that effect at a general meeting. Independent shareholders representing more than 50% of the independent shareholders of the Company's share capital provided their confirmation in writing in the form outlined at the end of this announcement.
Related Party Transaction
As each of Kestrel and MXC are substantial shareholders of the Company, and Salvators is beneficially held and controlled by Bill Dobbie, the Interim Non-Executive Chairman, they are deemed to be related parties pursuant to the AIM Rules for Companies (the "AIM Rules"). The participation of MXC, Salvators and Kestrel in the Transaction is therefore a related party transaction for the purposes of Rule 13 of the AIM Rules. IanSmith, Executive Director, is not independent for the purposes of the Related Party Transaction given that he is a substantial shareholder and CEO of MXC. The independent director of IDE Group, Katherine Ward, considers, having consulted with the Company's nominated adviser, finnCap, that the terms of the related party transaction are fair and reasonable insofar as the shareholders of the Company are concerned.
Admission
As a result of the Fundraising, a total of up to 197,999,998 new Ordinary Shares will be admitted to trading on AIM. These shares will rank pari passu in all respects with the existing ordinary shares of 2.5p each in the Company including the right to receive any dividend or other distribution thereafter declared, made or paid.
Application has been made to the London Stock Exchange for 20,000,000 new Ordinary Shares arising from the Firm Subscription (the"Firm Subscription Shares") to be admitted to trading on AIM ("Firm Admission").
It is expected that the Firm Admission will become effective and that dealings in the Firm Subscription Shares will commence on 1 August 2018.
Application will be made to the London Stock Exchange for the 107,999,998 new Ordinary Shares arising from the Conditional Subscription(the "Conditional Subscription Shares"), 50,000,000 Redemption Shares and up to 20,000,000 Open Offer Shares(together, the "Second Admission Shares")to be admitted to trading on AIM ("Second Admission"). It is expected that the Second Admission will become effective and that dealings in the Second Admission Shares will commence on or around 21 August 2018. The issue of the Conditional
Subscription Shares, the Redemption Shares and the Open Offer Shares will be conditional, inter alia, uponapproval of resolutions by the Company's shareholders at the General Meeting granting the directors of the
Company authority to allot the Conditional Subscription Shares, the Redemption Shares and the Open Offer Shares and disapplying statutory pre-emption rights in relation to such allotment.
Total Voting Rights
Following the issue of the Firm Subscription Shares, the total number of shares in issue will be 220,729,121
Ordinary Shares. There are no shares held in treasury. Therefore, the total number of voting rights in the Company will be 220,729,121. This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest under the Disclosure Guidance and Transparency Rules.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
IDE Group Holdings Plc
Tel: +44 (0)344 874 1000
Bill Dobbie, Interim Chairman Ian Smith, Executive Director
finnCap Limited
Tel: +44 (0)20 7220 0500
Nominated Adviser and Broker
Corporate finance: Jonny Franklin-Adams/ Scott Mathieson/ Hannah Boros
ECM: Tim Redfern/ Richard Chambers
The Proposed Transaction
Subscription
The Subscription is being conducted in two tranches, due to the Company's current limited authority to issue new shares on a non-preemptive basis.
a) The Firm Subscription
Pursuant to a subscription letter between the Company and MXC, the Firm Subscription Shares have been allotted at the issue price of 2.5 pence per Firm Subscription Share for an aggregate subscription value of £500,000 before expenses, conditional only upon the Firm Admission. Application for Firm Admission has been made to the London Stock Exchange and Firm Admission is expected to become effective on or around 31 July 2018.
b) The Conditional Subscription
Pursuant to subscription agreements between the Company and each of, MXC and Salvators, the Conditional Subscription Shares have been conditionally allotted at the issue price of 2.5 pence per Conditional Subscription Share for an aggregate subscription price of £2.7 million before expenses. The Conditional Subscription is conditional on the approval of resolutions by the Company's shareholders at the General Meeting granting the directors of the Company authority to allot the Conditional Subscription Shares and disapplying statutory pre-emption rights in relation to such allotment, and, in respect of MXC, the waiver of the obligation that might otherwise fall upon them pursuant to Rule 9 of the Takeover Code which is more fully described above.
Convertible Loan Notes
The CLNs are convertible over a term of five years from the date of issuance into new Ordinary Shares at an issue price of 2.5 pence per ordinary share and have no interest attached. If the CLNs are not converted, the outstanding principle amount will become repayable at the end of the five year term.
The CLNs will not be admitted to trading on AIM or any other exchange. The issue of the CLNs is conditionalon the approval of a resolution by the Company's shareholders at the General Meeting granting the directors
of the Company authority to allot new Ordinary Shares pursuant to any exercise notice received relating to the CLNs. Any new Ordinary Shares arising on conversion will rank pari passu with the Ordinary Shares in issue at that time and application for admission to trading on AIM will be made at the appropriate time.
Open Offer
In order to allow all shareholders of the Company to participate on the same terms as the Subscription, under the terms of the Open Offer, qualifying shareholders will be invited to apply for Open Offer Shares pro rata to their existing shareholdings on the basis of 1 Open Offer Share for every 10 existing ordinary shares held as at the record date, being 5.00 p.m. on or around 30 July 2018, at a price of 2.5 pence per Open Offer Share, payable in full on application and free of all expenses.
Excess applications for Open Offer Shares over and above the qualifying shareholders' pro-rata entitlements will be accepted from shareholders to the extent that other shareholders do not take up their entitlements. If such excess applications, together with the applications under the Open Offer, exceed the number of newOrdinary Shares which are the subject of the Open Offer, then excess applications will be scaled back at the discretion of the Company.
The Open Offer will allow the Company's existing shareholders to participate in the fundraising on the same terms as the Subscription. The Open Offer will be conditional, inter alia, upon approval of resolutions by theCompany'sshareholders at the General Meeting granting the directors of the Company authority to allot the Open Offer Shares disapplying statutory pre-emption rights in relation to such allotment.
MXC, Kestrel and Salvators have confirmed that they will not take up their entitlements under the Open Offer.
Redemption of Existing Loan Notes
On 30 May 2018, the Company announced it had issued the £2.0 million Existing Loan Notes to MXC, Kestrel and Salvators(together the "Loan Note Holders"). The Existing Loan Notes were unsecured and had a three-
year term with an annual coupon of 10 per cent. payable annually, alongside an arrangement fee of 1.5 per cent., payable on the first anniversary of the issue of the Existing Loan Notes. To alleviate the Company of the financial burden of the interest and arrangement fee attached to the Existing Loan Notes, the Company is repaying the Existing Loan Notes. The repayment of the Existing Loan Notes will be made by way of an allotment of 30,000,000 new Ordinary Shares and 20,000,000 new Ordinary Shares at 2.5 pence per share to MXC and Salvators respectively. Repayment of the remainder of the Existing Loan Notes, being £0.75 million, will be made to Kestrel by way of the issue of £0.75 million of additional CLNs, pursuant to the terms of the CLN Instrument. The Loan Note Holders will receive no compensation for future interest payments forgone attributed to the Existing Loan Notes, no payment for interest accrued to date and the arrangement fee of 1.5 per cent will be waived. The redemption of the Existing Loan Notes is conditional on the approval of resolutions by the Company's shareholders at a General Meeting granting the directors of the Company authority to allot the Redemption Shares and allot new Ordinary Shares pursuant to any exercise notice received relating to the CLNs and dis-applying statutory pre-emption rights in relation to such allotment and issue, and, in respect of MXC, the waiver of the obligation that might otherwise fall upon them pursuant to Rule 9 of the Takeover Code which is more fully described above. RBS has provided consent to the redemption of the Existing Loan Notes and issue of the new CLNs, subject to certain conditions precedent being satisfied.
Further Warrant Issue
In accordance with the warrant instrument dated 31 December 2015, disclosed on page 91 of the Company'sadmission document dated 4 January 2016, available on the Company's website, MXC will be issued with
additional warrants amounting to 5 per cent. of all new shares issued pursuant to the Transaction.
Accelerated Whitewash Letter
Independent Shareholders representing 60.34% of Independent Shareholders of the Company's share capital provided their confirmation in writing in the form outlined below:
FAO: Takeover Panel
RE: IDE Group Holdings ("IDE" or the "Company")
I have been made aware of the proposal that the Company raise up to £5.5 million by way of (in summary):
1. a subscription for 127,999,998 new ordinary shares at 2.5pence per share ("Subscription Shares") toraise £3.2million (the "Subscription");